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Why the Sims Metal share price is climbing higher today

The Sims Metal Management Ltd (ASX: SGM) share price has jumped 2.16% higher in early trade on the ASX this morning.

What’s moving the Sims Metal share price?

The company announced this morning that it will continue its on-market share buyback program. The buyback is for up to 10% of the company issued capital, equating to 20.3 million shares.

The buyback is expected to commence on 22 November and remain in place for up to 12 months.

The Sims Metal share price has climbed higher on the news and is currently trading at $9.92 per share.

CEO Alistair Field said it is part of the company’s “efficient capital management” aimed at “improving returns to shareholders”.

The buyback will help to offset the dilution effect from the company’s Employee Long Term Incentive Plan. Sims said the exact number of shares to be bought back will depend on market price and conditions.

The Sims Metal share price has plummeted lower from its 52-week high of $13.39 per share set as recently as September.

What else has been happening for Sims?

The company’s shares plunged lower in October after a 1H 2020 trading update from the group.

Sims said trading conditions had deteriorated since it first warned that its half-year profits would be materially lower than 1H 2019.

The company is now expecting a loss for the first half-year of 2020 with forecast underlying EBIT loss of $20 million to $30 million.

The big drivers have been a collapse in the ferrous scrap price and subsequent illiquidity, as well as unsold inventory. Sims is left holding stock that must be sold at a loss while margins continue to compress.

Foolish takeaway

This morning’s jump in the Sims Metal share price will come as welcome relief for shareholders, with a difficult period since September seeing the company’s shares fall into negative territory in 2019.

Sims Metal shares started the year at $9.80 per share and have edged up to $9.92 per share after this morning’s news.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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